How to DYOR on Crypto Projects?
How to do your own research on existing/upcoming crypto projects so that you can make a better decision on your trading.
DYOR stands for Do Your Own Research and is a common phrase used by cryptocurrency enthusiasts. However, the acronym is not a piece of advice exclusive to the cryptocurrency ecosystem. It is commonly used throughout the internet due to how fast and easily misinformation can spread. — From Binance Academy.
Have you ever thought about why?
- Why you cannot hold and rush to sell when dips?
- Why the token your friends recommended that you bought went zero?
- Why do you always sell before a bump?
If you always follow your friends’ trading, it’s very easy to become FOMO (fear of missing out) and then do impulsive trade, which is as the meme shows above. However, if the trading decision is made based on your own study, you will be less likely to do a hasty determination as every single piece of info you collect and analyze will be supporting each step you make, especially when fluctuations happen.
In this article, some methods of DYOR will be introduced
- Technical Analysis
- Sentimental Analysis
- Fundamental Analysis
I. Technical Analysis
Technical analysis is the study of the past price of an asset and forecasts the future price based on the analysis.
To dismantle the process of technical analysis can be a few steps. Firstly to look at the charts of the price trajectory and also to calculate some indexes that professional traders usually look into, e.g. EMA, MACD, RSI, etc. Next, based on those indicators to making an assumption on how other traders are going to make their decisions, followed by producing certain patterns afterward. To make it simple or the nature of the technical analysis is: if you think the majority of people are going to sell a specific token, then the price will go down and vice versa.
7 Technical Indicators to Build a Trading Toolkit
To do technical analysis is not easy as it requires you to have strong mathematical knowledge and usually, it’s for professional traders. Because it requires you to find the *alpha at an earlier stage than most traders based on all the public information that everyone is able to capture. It suits day traders or those who have more time to study the trending as usually the buy and sell decisions are made quickly.
II. Sentimental Analysis
Sentimental analysis is the study of what everyone is feeling about a stock or a token which is looking at the words that people are saying about the asset in social media, news, community, etc.
There are a few social media channels where Web3.0 players express their opinions: Twitter, Discord, Reddit, etc.
However, to do sentimental analysis is really time-consuming as you are required to read through all of the opinions on the token you are interested in, which means extremely large volumes of messages where in which both subjective and objective opinions exist. Next, you have to classify these opinions in a scientific way, precisely and efficiently, which is the most difficult part. Finally based on the result of your categorization make the decisions. It sounds like our data analyst job, right? but the different and difficult part is the way of capturing all those opinions and compiling them in a structured way.
There are some professional sentimental analysis providers that are helping, like Talkwalker, melt-water, etc. However, you are only provided the summarised result in end without knowing the process, which could lead to a risk of the result being manipulated, besides, the expenditure of their service is not affordable for retail traders like us. (I’m not saying these two companies are manipulating the data, just want to say could be having this risk potentially)
III. Fundamental Analysis
The world is not black or white, world is a multivariable environment where patterns emerge and you can find and take advantage of them.
Fundamental analysis is the study of the actual ideas, team, and progress of a specific project.
To do fundamental analysis, you just need to answer one question: How many people are going to buy this coin?
Coins are essentially securities, most of them do not have profit generating mechanism, which means that most is only profitable when other people keep buying the tokens.
Some aspects of fundamental analysis
- Tokenomics
- Team
- What problem are the projects solving?
1. Tokenomics
Tokenomics = Token + Economics
the core of analyzing the tokenomics is to answer: whether it is Inflationary or Deflationary
Inflationary: The coin will be continuously minted over time and will probably price drop if nobody continuously buying.
Deflationary: The coins are actually starting to be destroyed (since someone lost their key or sent them to some invalid address) and usually will gradually increase in price.
For example, BNB is a deflationary asset as it has fix amount of supply and an auto-burn mechanism to reduce its supply. *What Is BNB Auto-Burn?
Besides the inflationary vs deflationary, supply and demand will also influence the price which is relying on the tokens’ utility.
MUST READ: Binance Research: Tokenomics deep dive
2. Project team
Studying the staff of the project team is very important as you are not just buying a token but supporting the team behind the token. How they are utilizing your money to make more profits and contribute to the whole crypto industry is essential and will be determining whether your investment is profitable or not.
Since the executive and operational details of the project are not as public as the stock markets where the balance sheet is exposed to the public, the characteristics and the working style of the project teams might be one of the few pieces of public info that you are able to find out from whether your own circle or their LinkedIn, and it requires you have strong networking or know much about human nature.
A fun fact is that some candidates from famous schools are much easier to get recognition from those VC/PE companies as their networking makes them the first to know which of their promising and capable alumni are going to start their own business.
3. What problem are the projects solving?
Please just don’t buy any tokens until you know what the project is about to do.
- If it’s DeFi, what makes it different from other DeFi protocols and how are they going to solve the capital efficiency issues? How are they providing more liquidity to enhance the trading experience with fewer expenditures on token incentives or any other better mechanism design?
- If it’s GameFi, what makes them stand out from other popular on-chain games? Do they have the capability to attract players? Is their game fun? What is their token’s utility?
- If it’s a public chain, what current obstacles are solved by this chain, especially for the Blockchain trilemma?
- If it’s an NFT token, what is its token utility? Is the utility attractive to the community?
For different kinds of projects, the way of considering will be way more different but the roots are the same, which is whether what the project team doing will benefit the crypto industry or not. It can be fundamentally, like inventing a new blockchain; emotionally, like bringing over a fun game; or aesthetically like some fantastic artwork NFT, etc.
MUST read: Binance Research token utility introduction: link
Some resources
In the last part of this article, some resources that I personally often check are provided for your reference.
- Dune Analytics
- Glassnode Studio
- IntoTheBlock, which contains: Blockchain Analytics( price correlation with BTC) concentration by large holders, Price Predictions, DeFi Analytics, Market Analytics, etc.
Thank you!
*The idea is inspired by one of my favorite YouTubers: whiteboard crypto.
